Last week I wrote a column entitled The riddle of German self-interest. To my surprise, it received a lengthy response from a senior and highly respected official of the German finance ministry. I am very grateful for this reply, because it clarifies the German finance ministry’s position and raises a number of profound issues.

In the interests of clarifying these issues further, I comment below on some of the statements made in that letter. Read more

In my most recent post, I investigated whether fiscal contractions were expansionary. The answer seemed to be unambiguously negative: eurozone member countries that had undertaken large cyclically adjusted fiscal contractions had also experienced larger declines in gross domestic product. This being so, a question obviously follows:

Does fiscal contraction improve actual fiscal outcomes or are the effects on GDP so dire that outcomes do not improve?Read more

Paul Krugman has an interesting blog on the New York Times website on austerity and growth in the eurozone. I thought it would be interesting to examine the question, using the latest data from the International Monetary Fund’s World Economic Outlook database.

I have defined the fiscal tightening as the percentage point change in the structural (or cyclically-adjusted) general government deficit from 2008, the year of the crisis, to the forecast for 2012. The assumption is that this change represents the results of policy, rather then cyclical effects. I have taken growth as being the proportional change in GDP from 2008 to 2012. Read more

Martin Wolf Exchange

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On this blog, I will open the discussion of a topic that I am thinking about. My aim will be to elicit views of readers. I will give my own response to the question I have raised, before posting the next issue for discussion.

Martin Wolf is chief economics commentator at the Financial Times, London. He was awarded the CBE (Commander of the British Empire) in 2000 “for services to financial journalism”. Mr Wolf is an honorary fellow of Nuffield College and of Corpus Christi College, Oxford. He is also an honorary professor at the University of Nottingham. He has been a forum fellow at the annual meeting of the World Economic Forum in Davos since 1999 and a member of its International Media Council since 2006.

Martin was made a Doctor of Letters, honoris causa, by Nottingham University in July 2006 and a Doctor of Science (Economics) of London University, honoris causa, by the London School of Economics in December 2006. He was joint winner of the 2009 award for columns in “giant newspapers” at the 15th annual Best in Business Journalism competition of The Society of American Business Editors and Writers and won the 32nd Ischia International Journalism Prize in 2012. Martin's most recent publications are Why Globalization Works and Fixing Global Finance.